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At under $50/barrel, gasoline is now selling for under $2/gallon in many USA locations. This is a price rollback to 2008 - something almost no one expected in early 2014.

Don't jump to conclusions

It is easy to jump to conclusions about what this will mean for sales of some products. And many analysts have been saying this is a terrible scenario for Tesla, which sells all electric cars. The idea is pretty simple, and goes something like this: People buy electric cars to save on petrol costs, so when petrol prices fall their interest in electric cars decline. With gasoline cheap again, nobody will want an electric car, so Tesla will do poorly.

It is a gross mis-assumption to say people buy Teslas because they are electric powered. People are buying Teslas because they are great cars which are fun to drive, perform well, look stylish, have low maintenance costs and very low operating costs. And Teslas are more ecological in a world where people increasingly care about "going green." In 2015 consumers will be able to choose not only the Roadster, and the fairly pricey Model S, but soon enough the smaller, and less expensive, Model 3 which is targeted squarely at BMW Series 3 customers. Teslas are designed to compete with all cars for consumer dollars, not just electric cars and not just on the basis of using less fuel.

Second, the market for autos is global and gasoline isn't cheap everywhere.

Take for example Hong Kong, where gasoline still retails for $8.50/gallon (as of 31Dec. 2014.) Or Paris or Munich where gasoline costs $5/gallon - even though the Euro's value has shrunk to only $1.20. Outside the USA most developed countries have a lot more demand for oil than they have production (if they have any production at all.)

Almost all of these countries offer incentives for buying electric cars. For example, in Hong Kong and Singapore the import tax on an auto can be 100-200% of the car's price (literally double or triple the price due to import taxes.) But in these same countries the tax is greatly reduced, or eliminated entirely, for buying an electric car for policy reasons to promote lower oil consumption and cleaner city air. So a $100,000 Mercedes E class in Hong Kong will cost $200,000+, while a $100,000 Model S costs $100,000. It takes really low gasoline prices to make up that difference!

Further, outside the USA most countries heavily tax gasoline and diesel in order to discourage consumption. So even as oil prices go down, gasoline prices do not decline in lock-step with oil price declines because the taxes remain (which are often more than the actual price of the fuel.) Consumers in these countries have a much greater demand than U.S. consumers for high mileage (and electric) cars almost regardless of crude oil prices. So thinking that low USA gasoline prices reduces demand for electric cars is actually quite myopic.

Third, do you really think oil prices will stay low forever?

Oil is a commodity with incredible political impact. Pricing is based on much more than "supply and demand." At any given time Aramco, or its lead partners such as Saudi Arabia and the UAE, can decide to simply pump more, or less, oil. Today they are happy to pump a lot of oil because it hurts countries with which they have a bone to pick - such as Russia (now almost out of bank reserves due to low oil prices) and Iran. And by helping USA consumers it reduces domestic interest in things like the Keystone Pipeline which could lessen long-term reliance on Aramco oil. And it hobbles investing in risky development projects like the arctic ocean.

Tomorrow these countries could decide to pump less, as they did in the mid-1970s, driving up prices and almost killing the U.S. economy.

Oil prices have a long history of instability. Like most commodities. That's why a state economy like Texas, which produces a lot of oil, could boom the last 4 years, while manufacturing states (like Wisconsin and Illinois) suffered. With oil back under $50/barrel drilling rigs will go into mothballs, oil leases will go undeveloped, fracking projects will be stalled and the economy of oil producing states will suffer. Like happened in the mid-1980s when Saudi Arabia once again began flooding the market with oil and exploration and production companies across Texas went out of business.

Don't be overly simplistic when projecting future scenarios

Most people are smart enough to realize you look at all aspects of owning a new car when buying one. There are a lot of reasons to buy Tesla automobiles. Not only does Tesla make good cars, but the company is changing the sales model by eliminating those undesirable auto dealers most consumers hate. And Tesla is building charging stations in many locations to make refills painless. And consumers don't have to change the oil, or do quite a bit of other maintenance. And they do less damage to the environment. The purchase decision is not simply an economic analysis of fuel prices.

It is always risky to oversimplify consumer behavior. Decisions are rarely based entirely on price. And, as
Apple has shown with sales if iOS devices and Macs, people often buy more expensive products when they are offered a better experience and brand. More important is understanding the impact of any specific market variable in relation to long term trends. Looked at this way, Tesla remains smack dab on top of 3 critical long-term trends - (1) the move to quality products which work really well, improve productivity and carry brand cache, (2) the move to globalization, global brands, and targeting markets where product advantages maintain advantage, and (3) recognizing that ecology and decreasing reliance on fossil fuels are long-term goals accepted and pursued by policy makers and consumers alike.

Long term investors know that when a stock is beaten down by a short-term reaction to a short-term phenomenon (such as this fast decline in oil prices) it often creates an opportunity to buy into a company with a great future potential for growth.